The Child Tax Credit: Economic Analysis and
Policy Options
Margot L. Crandall-Hollick
Analyst in Public Finance
May 14, 2013
Congressional Research Service
7-5700
www.crs.gov
R41935
CRS Report for Congress
Pr
epared for Members and Committees of Congress
The Child Tax Credit: Economic Analysis and Policy Options
Summary
At the beginning of 2013, Congress enacted the American Taxpayer Relief Act of 2012 (ATRA;
P.L. 112-240), which made certain modifications to the child tax credit enacted in 2001 and 2003
permanent, while extending other modifications made in 2009 temporarily for five years (through
the end of 2017). In light of these legislative changes, policymakers may be interested in
understanding the economic impact of both the permanent and temporary changes in order to
determine future modifications of the credit.
The child tax credit is currently structured as a $1,000-per-child credit that is partially refundable
for lower-income families with more than $3,000 in earnings. Prior to 2001, the child tax credit
was a $500-per-child nonrefundable tax credit which generally benefited middle- and upper-
middle-income taxpayers. Legislative changes to the credit, primarily those included in the
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16) and the
American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5), expanded the child tax
credit’s availability to some low-income taxpayers. Specifically,
• EGTRRA increased the maximum amount of the child tax credit from $500 per
child to $1,000 per child. It also allowed lower-income taxpayers, with little or
no tax liability, to claim part of the credit as a refund.
• ARRA reduced the refundability threshold from $10,000 (adjusted for inflation)
to $3,000.
These legislative changes, originally scheduled to expire at the end of 2010, were temporarily
extended through the end of 2012 by the Tax Relief, Unemployment Reauthorization and Job
Creation Act of 2010 (“The 2010 Tax Act”; P.L. 111-312). At the end of 2012, ATRA made the
EGTRRA changes to the child tax credit permanent and extended the ARRA changes for five
years, through the end of 2017.
This report provides an economic analysis of the current credit, focusing on the credit’s impact on
fairness (also referred to as “equity”). The report then turns to an analysis of the impact of the
EGTRRA and ARRA modifications to the child tax credit and the potential future impact, on
taxpayers with children and on the budget, of extending these provisions past 2017.
Finally, this report concludes with an overview of other possible modifications (aside from
EGTRRA and ARRA provisions) to the child tax credit. The impact of these modifications will
depend on a taxpayer’s income. Modifications that benefit middle- and upper-middle-income
taxpayers include increasing the amount of the credit per child and increasing the phase-out
thresholds. Modifications that benefit lower-income taxpayers include reducing the refundability
threshold or increasing the current refundability rate. These changes will likely have significant
budgetary cost that policy makers may consider alongside their policy goals.
This report does not provide an in-depth examination of the history of the credit. For more
information on the legislative history of the credit, see CRS Report R41873, The Child Tax
Credit: Current Law and Legislative History, by Margot L. Crandall-Hollick.
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The Child Tax Credit: Economic Analysis and Policy Options
Contents
Introduction ...................................................................................................................................... 1
Current Law ..................................................................................................................................... 1
Who Claims the Child Tax Credit? .................................................................................................. 2
Economic Analysis .......................................................................................................................... 4
Equity of the Child Tax Credit................................................................................................... 5
Efficiency (Behavioral Effects) of the Child Tax Credit ........................................................... 8
Impact on Work Choices ..................................................................................................... 8
Impact on Having Children ................................................................................................. 8
Complexity of the Tax Code ...................................................................................................... 9
Policy Proposals: Extending ARRA Modifications ......................................................................... 9
Impact of EGTRRA Versus ARRA Modifications to the Credit ............................................. 10
Distributional Impact......................................................................................................... 10
Number of Children Affected by EGTRRA Versus ARRA Changes ................................ 11
Cost of Extending EGTRRA and ARRA Modifications to the Credit ..................................... 12
Policy Options: Changing Other Parameters of the Credit ............................................................ 13
Increasing the Maximum Amount of the Credit ...................................................................... 13
Reducing the Refundability Earnings Threshold and Increasing the Refundability
Rate ....................................................................................................................................... 14
Increasing the Phase-out Limits of the Credit ......................................................................... 15
Policy Options: Reducing Complexity by Creating Uniform Child Benefits ................................ 16
Figures
Figure 1. Number of Children Affected by an Extension of EGTRRA and ARRA Child
Tax Credit Provisions, 2013 ....................................................................................................... 12
Figure 2. Amount of Child Tax Credit by Income Level, 2011 Single Parent with Two
Children Filing as Head of Household ....................................................................................... 17
Tables
Table 1. Distribution of Child Tax Credit Benefit, 2010.................................................................. 3
Table 2. Federal Tax Rates With And Without The Child Tax Credit, 2010 .................................... 6
Table 3. Distribution of EGTRRA and ARRA Child Tax Credit Benefits, 2011 ........................... 10
Contacts
Author Contact Information........................................................................................................... 18
Acknowledgments ......................................................................................................................... 18
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The Child Tax Credit: Economic Analysis and Policy Options
Introduction
The Taxpayer Relief Act of 1997 (P.L. 105-34) created a $500-per-child nonrefundable tax credit
to help ease the financial burden that families incur when they have children.1 Since 2001,
legislative changes, particularly those made by the Economic Growth and Tax Relief
Reconciliation Act of 2001 (EGTRRA; P.L. 107-16) and the American Recovery and
Reinvestment Act of 2009 (ARRA; P.L. 111-5), have altered the structure of this tax benefit.
Specifically, the amount of the credit per child has increased and the credit has been made
partially refundable, expanding the availability of the credit to some low-income families. The
American Taxpayer Relief Act (ATRA; P.L. 112-240) made the EGTRRA changes to the child tax
credit permanent and extended the ARRA modification for five years, through the end of 2017.
In light of the changes made to the child tax credit by ATRA, the goal of this report is two-fold:
(1) to analyze the economic impact of the child tax credit as it is currently structured (when both
the EGTRRA and ARRA changes are in effect) and (2) to present policy options for changing
parameters of the credit—as part of potential tax reform in the 113th Congress or prior to the
expiration of the ARRA changes at the end of 2017. This report first provides a brief overview of
the current structure of the credit, followed by an economic and distributional analysis of the
credit. The economic analysis focuses on the equity (i.e., “fairness) of this tax provision, based on
different definitions of equity, and examines the limited impact of the credit on taxpayer behavior.
The report concludes with an analysis of several policy options for the child tax credit. This
report does not provide an in-depth examination of the history of the credit.2
Current Law
Currently, families with children may be eligible to claim a tax credit for each eligible child,
subtracting the amount of the credit from their tax bill in order to reduce the taxes they owe. The
current child tax credit has three key features.3
• Amount: The credit equals a maximum of $1,000 per child.
• Refundability: Families with little or no income tax liability may be able to
claim the credit as a refund. The amount of the refund is equal to 15% of a
taxpayer’s earnings above $3,000, up to the maximum amount of credit for the
family. This is referred to as the “earned income” refundability formula.
• Phase-out: The credit is phased out for higher-income taxpayers. Specifically,
the credit is reduced by $50 for every $1,000 a family’s modified adjusted gross
income (AGI)4 exceeds specific income thresholds.5
1 For more information see U.S. Congress, Joint Committee on Taxation, JCS-23-97, General Explanation of Tax
Legislation Enacted in 1997, December 17, 1997, pp. 6-7.
2 For more information on the legislative history of the credit, see CRS Report R41873, The Child Tax Credit: Current
Law and Legislative History, by Margot L. Crandall-Hollick.
3 This reflects current law in effect between 2009 through the end of 2017. For more information on legislative changes
scheduled to occur beginning in 2018, see CRS Report R41873, The Child Tax Credit: Current Law and Legislative
History, by Margot L. Crandall-Hollick.
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The monetary parameters of the credit (credit amount, refundability threshold, and phase-out
threshold) are not indexed for inflation. The child tax credit can also offset a taxpayer’s
alternative minimum tax (AMT)6 liability. One key parameter of the child tax credit is scheduled
to change at the end of 2017. Specifically, the ARRA modification which lowered the
refundability threshold to $3,000 (not indexed for inflation) is scheduled to expire. Hence, under
current law, beginning in 2018, the refundable threshold is scheduled to increase to $10,000
(indexed for inflation occurring since 2001).
Who Claims the Child Tax Credit?
The current structure of the child tax credit benefits taxpayers over a wide range of income, as
illustrated by Table 1. Roughly half of the child tax credit benefits go to taxpayers with cash
incomes under $50,000, whereas the other half go to those making more than $50,000. Among
taxpayers with cash incomes above $50,000, those with incomes between $50,000 and $75,000
receive the largest proportion of child tax credit benefits, 18.5%, underscoring the fact that this
tax credit provides significant benefits to middle-income families. Most taxpayers with incomes
above $200,000 will be ineligible for the credit due to the phase-out thresholds.7
(...continued)
4 With respect to the child tax credit, modified adjusted gross income (MAGI) is equal to adjusted gross income (AGI)
increased by foreign earned income of U.S. Citizens abroad, including income earned in Guam, American Samoa, the
Northern Mariana Islands and Puerto Rico. AGI is equal to a taxpayer’s total income minus certain adjustments to
income (“above the line deductions”). AGI is the basic measure of income under the federal income tax and is the
income measurement before deductions and personal exemptions are taken into account.
5 The phase-out thresholds depend on filing status: $75,000 for single parents filing as head of household, $110,000 for
married taxpayers filing jointly, and $55,000 for married taxpayers filing separately.
6 The AMT is a parallel income tax system created by Congress to ensure that everyone pays at least a minimum of
taxes and still preserves the economic and social incentives in the tax code. For more information on the AMT, see
CRS Report RL30149, The Alternative Minimum Tax for Individuals, by Steven Maguire.
7 The maximum amount of income at which the credit equals zero depends on the number of eligible children for whom
the taxpayer is claiming the credit. Generally $1,000 of child tax credit is reduced to zero for every $20,000 of
modified AGI above the phase-out threshold. Hence, a family with five eligible children would theoretically see the
child credit phase-out to zero once AGI exceeded $210,000. In addition, taxpayers with cash income above $200,000
may be able to claim the credit because modified AGI may be less than cash income in certain circumstances.
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Table 1. Distribution of Child Tax Credit Benefit, 2010
Cash Incomea
Share of Total
Distribution of
(2009 dollars)
Benefit
Tax Unitsb
Less than $10k
2.9%
10.0%
$10k to $20k
11.0%
13.5%
$20k to $30k
14.3%
12.0%
$30k to $40k
13.2%
10.3%
$40k to $50k
10.8%
7.9%
$50k to $75k
18.5%
13.3%
$75k to $100k
16.1%
11.4%
$100k to $200k
12.7%
15.8%
More than $200k
0.2%
5.4%
Total 100%
100%
Source: Tax Policy Center, Table T10-0074, February 8, 2010.
Notes: Items may not sum to 100% due to rounding.
a. Cash income includes wages and salaries, investment (taxable dividends, realized net capital gains) and
business income as well as government transfer payments (social security, SSI, veterans benefits), employee
contributions to tax-deferred retirement savings plans, and business income or loss.
b. A tax unit consists of an individual or married couple and their dependents that would, if their income
exceeded the relevant filing threshold, file an individual income tax return.
EGTRRA and ARRA, which first made the credit partially refundable and then expanded
refundability respectively, expanded the credit’s availability to lower-income Americans,
especially those with incomes between $10,000 and $20,000. Prior to this expansion, the credit
was largely available only to middle- and upper-middle-income taxpayers. Upon expiration of the
ARRA expansions of the credit at the end of 2017, fewer low-income Americans will be eligible
to claim the credit8 and other low-income taxpayers will receive a smaller refundable credit.9 As
noted above, the EGTRRA provisions were made permanent by ATRA.
Although the current credit is generally available to low-income taxpayers, it provides little
benefit to extremely poor taxpayers. Specifically, as illustrated in Table 1, taxpayers with income
under $40,000 receive 41.4% of the child tax credit. However, the subset of these taxpayers with
incomes under $10,000 receives 2.9% of the child tax credit, even though they make up 10% of
tax units.10 This suggests that this provision may not benefit the very poor in proportion to their
population.
Taxpayers with very low income (i.e., less than $10,000) do not benefit from the child tax credit
(or receive a very small credit less than $1,000 per child) for two reasons. First, taxpayers with
very low income do not have any income tax liability and so cannot claim the nonrefundable
8 Specifically, those taxpayers with earnings between $3,000 and $10,000 (indexed for inflation occurring since 2001),
will be ineligible for the refundable portion of the child tax credit beginning in 2018 under current law.
9 For example, if a taxpayer had one child and $18,000 of earnings, they would be eligible to receive a $1,000
refundable credit under current law. If the threshold rose to $10,000 indexed for inflation occurring since 2001—
approximately $13,000 in 2012—the refundable portion of the credit would be $750.
10 The distribution of child tax credit benefits in this table reflects the distribution of the total budgetary cost (reduced
revenues and increased outlays for the refundable portion of the credit).
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portion of the child tax credit. Even if the taxpayer had one qualifying child—and so would be
able to reduce their tax liability by $1,000—if they do not owe any federal income taxes, they
cannot reduce their taxes by the credit amount. This is one rationale for making tax credits
refundable (i.e., available to taxpayers with little or no tax liability). The child tax credit is
refundable. However, the child tax credit is only refundable if taxpayers have earnings above
$3,000, and the refund is calculated as 15 cents for every dollar of earnings above this $3,000
threshold. Hence, the second reason the very poor do not claim the credit, or claim less than the
full value of the credit, is that their low income prevents them from fully benefiting from the
refundable portion of the credit. For example, a taxpayer with two children and earnings of
$10,000 would, based on the refundability formula, be eligible for $1,050 in child tax credits, as
opposed to the maximum amount of $2,000. A taxpayer with two children needs $16,333 in
earnings to be able to claim the full $2,000 of child tax credit.
Economic Analysis
Generally, economists evaluate tax policy—like the child tax credit—through three different
lenses: the equity (or fairness) of the provision (which necessitates defining fairness), how the tax
provision affects taxpayers’ behavior (again, the intended behavior must be specified), and the
complexity of administering the tax provision. These three lenses are often referred to as equity,
efficiency, and administration, respectively. A provision may be seen differently through these
lenses. For example, a tax provision may simplify the tax code (improve administration), but
result in an undesirable behavior (reduce efficiency). Hence economists tend to evaluate a tax
provision using these three approaches to provide the most complete economic analysis of the
provision. As with other tax provisions, this report will analyze the child tax credit through the
lenses of equity, efficiency, and administration. Specifically:
Equity: Economic theory suggests that there are two ways to analyze the fairness of a provision,
vertical equity and horizontal equity. Vertical equity states that groups with more resources should
pay more taxes, whereas horizontal equity states that families with the same circumstances should
pay the same taxes. While the child tax credit is generally evaluated as vertically equitable,
because it reinforces the progressivity of the current tax code, economists have differing views on
whether it is horizontally equitable.
Efficiency: When examining the efficiency of a tax provision, economists examine how a tax
provision affects taxpayer behavior, in terms of encouraging a taxpayer to do more or less of a
certain activity. Theoretically, the child tax credit may have effects on taxpayer behavior, in terms
of encouraging taxpayers to work and to have children, but there is currently very little evidence
to support or refute these theories.
Administration: Tax policies—like the child tax credit—can be analyzed with respect to their
effect on the complexity of the tax code. The administration of a tax provision can affect whether
it ultimately achieves its economic or policy goals. There are a variety of tax benefits available to
families with children, and the addition of the child tax credit, while beneficial to many families,
has made the tax code potentially more complicated especially for lower-income taxpayers.
The following section examines in detail the child tax credit in terms of its impact on equity,
taxpayer behavior, and tax administration.
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Equity of the Child Tax Credit
There are several ways to assess the fairness or equity of a tax provision. Depending on the
definition used, the child tax credit may or may not be equitable.
The current federal income tax is progressive, meaning higher-income taxpayers pay a greater
share of their income in taxes (and thus have a higher average income tax rate) than lower-income
taxpayers. A progressive tax system reflects a standard of fairness called vertical equity (whether
taxes should be progressive and how progressive is subject to some debate).11
The child tax credit is generally considered vertically equitable because it reinforces the
progressivity of the current income tax structure. The credit is structured to lower the tax burden
of families earning between $3,000 and the phase-out income level, generally $150,000 for a
married couple with two children.12 As illustrated in Table 2, the child tax credit reduces the
average federal tax rate of taxpayers with cash income under $200,000, while having little impact
on taxpayers with income greater than $200,000. In addition, the child tax credit tends to reduce
lower-income taxpayers’ average tax rates more than it reduces the average tax rate of higher-
income taxpayers. The largest reduction occurs among those with income between $10,000 and
$20,000.
11 For more information on the progressivity of the tax code see CRS Report RL32693, Distribution of the Tax Burden
Across Individuals: An Overview, by Jane G. Gravelle.
12 In general it takes $20,000 of modified AGI to eliminate $1,000 of child tax credit. Hence, if a single parent has one
child, the child tax credit will be eliminated when modified AGO exceeds $95,000.
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Table 2. Federal Tax Rates With And Without The Child Tax Credit, 2010
Average Federal
Tax Ratea
Average
Change in
Federal
Cash Income
Without
With
Taxes from
(2009 dollars)b
Credit
Credit
Credit
Less than $10k
-13.6%
-19.1%
-$347
$10k to $20k
-9.4%
-15.8%
-$994
$20k to $30k
0.5%
-5.3%
-$1,450
$30k to $40k
8.8%
4.4%
-$1,549
$40k to $50k
13.3%
9.6%
-$1,669
$50k to $75k
16.9%
14.2%
-$1,669
$75k to $100k
19.2%
17.3%
-$1,715
$100k to $200k
23.2%
22.6%
-$981
$200k to $500k
26.5%
26.5%
-$67
$500k to $1 million
26.0%
26.0%
-$60
More than $1 million
28.5%
28.5%
-$12
Source: Tax Policy Center, Table T10-0074, Feb. 8, 2010.
a. The average federal tax rate includes individual and corporate income tax, payroll taxes and the estate tax
as a percentage of average cash income. Negative tax rates indicate that taxpayers did not owe taxes and
received a refund. This may be a result of a variety of tax benefits including the standard deduction, the
dependent exemption and the Earned Income Tax Credit (EITC).
b. Cash income includes wages and salaries, investment (taxable dividends, realized net capital gains) and
business income as well as government transfer payments (social security, SSI, veterans benefits), employee
contributions to tax-deferred retirement savings plans, and business income or loss.
c. At the end of 2012, all of the parameters of the child tax credit that were in effect from 2009-2012 were
extended through the end of 2017 by P.L. 112-240. However, P.L. 112-240 did increase tax liabilities on
upper income taxpayers beginning in 2013. Hence, as a result of these legislative changes, tax liabilities with
and without the credit may have changed for taxpayers making over $250,000 ($300,000 married taxpayer
filing jointly)—especially for taxpayers making over $400,000 ($450,000 married taxpayer filing jointly)—
between 2010 and 2013. For more information on the tax provisions of P.L. 112-240, see CRS Report
R42894, An Overview of the Tax Provisions in the American Taxpayer Relief Act of 2012, by Margot L. Crandall-
Hollick.
Another standard of fairness used by economists—referred to as horizontal equity—suggests that
families with equal circumstances should pay equal taxes. The child tax credit’s effect on
horizontal equity ultimately depends on what are considered “equal circumstances.” In other
words, are taxpayers considered equal if they have the same income or are they considered equal
if they have chosen to spend that income in the same way?
Some economists interpret horizontal equity to mean that families with the same amount of
financial resources (i.e., income) should pay the same amount in taxes (and thus have the same
average tax rate), regardless of whether they use those resources to buy a house, go on a vacation,
or have a child. If children are viewed as choices of how taxpayers use their resources, the credit
would violate horizontal equity. Specifically, the child tax credit generally provides greater tax
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benefits to a family as the number of children increases, assuming their income remains
unchanged.13 For example, in 2012 a married couple that has $50,000 in earnings and no children
(and hence is ineligible for the child tax credit) would be expected to owe $3,634 (7.3% average
tax rate) in taxes. If the same married couple had one child, they would be expected to owe
$2,634 after applying the child tax credit (5.3% average tax rate). If they had an additional child,
the credit would lower their tax liability to $1,634 (3.3% average tax rate).14
Other economists define horizontal equity to mean that families with the same “ability to pay”
should pay the same in tax.15 Under this definition, families with more children should pay less in
tax because additional children reduce their ability to pay.16 According to the “ability to pay”
approach, the child tax credit does not generally violate horizontal equity.17 Congress used the
“ability to pay” interpretation of horizontal equity to justify the structure of the child tax credit in
1997. According to the Joint Committee on Taxation, the main reason for the creation of a child
tax credit was that
Congress believed that [prior to the child tax credit] the individual income tax structure [did]
not reduce tax liability by enough to reflect a family’s reduced ability to pay taxes as family
size increases.... The Congress believed that a tax credit for families with dependent children
will reduce the individual income tax burden of those families, will better recognize the
financial responsibilities of raising dependent children, and will promote family values.18
Policymakers may also be interested in evaluating child tax benefits like the child tax credit
simultaneously with the other available tax benefits to get a holistic picture of the tax code’s
impact on equity. For example, as previously mentioned, the child tax credit when evaluated
individually may not be horizontally equitable at low incomes. Based on this analysis, increasing
13 For a family with very low income and no tax liability, additional children will not necessarily increase their child
tax credit and thus lower their average tax rate.
14 In this example, the family’s tax liability is arrived at by reducing their AGI (which in this case is entirely earnings)
by the standard deduction and two personal exemptions for the parents to arrive at taxable income in 2012. The 2012
tax tables are then used to determine the tax rate for a married couple with taxable income of $30,000 ($50,000 minus
$12,200 in the standard deduction and $7,800 in personal exemptions). For the
two-, three-, and four-member families in this example, only two personal exemptions are applied in order to isolate the
impact of the child tax credit on average tax rates. In practice, as families have children, they can also reduce their
taxable income by the dependent exemption.
15 For example, see Jospeh J. Cordes, “Horizontal Equity,” in The Encyclopedia of Taxation and Tax Policy, ed. Joseph
J. Cordes, Robert D. Ebel, Jane G. Gravelle, 2nd ed. (Washington D.C.: The Urban Institute Press, 2005), pp. 183-184
or Frances Woolley, Arndt Vermaeten, and Judith Madill, “Ending Universality: The Case of Child Benefits,”
Canadian Public Policy, vol. 22, no. 1 (March 1996), p. 25.
16 A family’s ability to pay is often calculated by making adjustments for family size that reflect that each additional
family member does not increase expenses by the same amount. In other words, a family with four members does not
need four times the income of a single person because the family can share certain goods like housing and utilities. For
more information on approaches to calculating a family’s ability to pay, see CRS Report RL33755, Federal Income
Tax Treatment of the Family, by Jane G. Gravelle.
17 In certain cases, primarily among certain low- and high-income families, the credit is more likely to violate this
interpretation of horizontal equity. Among low-income families, the amount of the child tax credit is primarily a
function of a family’s earnings, not the number of children. Hence, for low-income families, the credit may not increase
as the number of children does and is not horizontally equitable. For example, a family with two children and $15,000
in earnings will be able to claim $1,800 of child tax credits. If their income remains unchanged and they have an
additional child, the maximum of the credit will remain $1,800. Among high-income families, the credit phases-out
until it can no longer be claimed.
18 For more information see U.S. Congress, Joint Committee on Taxation, JCS-23-97, General Explanation of Tax
Legislation Enacted in 1997, December 17, 1997, pp. 6-7.
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refundability of the credit could make the credit more horizontally equitable for some low-income
families. However, prior CRS analysis suggests that after making adjustments for a family’s
ability to pay based on family size, the totality of child tax benefits results in a tax system that is
disproportionally generous at lower income levels to larger as opposed to smaller families.19 In
this broader context, expanding refundability of the child tax credit could exacerbate horizontal
inequities.
Efficiency (Behavioral Effects) of the Child Tax Credit
Economists may also analyze tax provisions in terms of whether a tax provision results in more or
less of a good being produced or consumed. Subsidies, which lower the prices of goods,
theoretically result in more of a good being consumed and produced. The current structure of the
child tax credit subsidizes both low-wage work (by the earned income formula) and children (by
the $1,000 per child aspect of the provision). However, there is currently very little substantive
research evaluating the impact of the child tax credit on taxpayer behavior.
Impact on Work Choices
The child tax credit’s current refundability structure creates a wage subsidy for some low- income
families, suggesting it may affect work decisions. For eligible families with sufficiently low
income, the child tax credit gives families 15 cents for every dollar of earnings above $3,000.
Economic theory suggests that increasing the price of labor (the wage) among low-income
workers will have the overall effect of encouraging them to work more.20 In practice, however, it
is very difficult to isolate the labor market effects of the child tax credit from the similarly
structured but larger subsidy provided by the EITC, since both credits simultaneously subsidize
earnings over the same income range.
Impact on Having Children
The child tax credit is unlikely to have a significant impact on inducing families to have
additional children. While the child tax credit reduces the cost of a child, the expenses incurred
from having children greatly exceed the value of the credit for most taxpayers. A government
report estimates that the annual cost of raising a child in a middle-income family ranged from
$11,650 to $13,530.21 In addition, families choose to have children for a variety of factors that are
not motivated by economics, including the happiness and fulfillment that children may bring
them.
19 For more information on this research, see CRS Report RL33755, Federal Income Tax Treatment of the Family, by
Jane G. Gravelle.
20 A wage subsidy will have two conflicting effects on the amount of labor supplied by a worker. The first effect will be
to encourage the worker to work more because they are paid more (“the substitution effect”). The second effect will be
to encourage the worker to work less because they can achieve the same income level with less work hours (“the
income effect”). Evidence suggests that for low-income workers, the income effect is much smaller than the
substitution effect, meaning a wage subsidy should increase labor-market participation for those eligible for the
refundable portion of the credit. For more information on the impact of taxes and subsidies on labor supply see CRS
Report RL31949, Issues in Dynamic Revenue Estimating, by Jane G. Gravelle.
21 Mark Lino, Expenditures on Children by Families, 2009., U.S. Department of Agriculture, Center for Nutrition
Policy and Promotion., June 2010, http://www.cnpp.usda.gov/Publications/CRC/crc2009.pdf.
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Complexity of the Tax Code
In a 2010 report to Congress, the IRS Taxpayer Advocate identified the complexity of the current
tax code as the most serious problem facing taxpayers.22 Tax policies, including those targeted
toward families with children, are currently structured very differently, adding to the complexity
of the tax code.23 For example, a single parent with a 16-year-old child and income of $20,000 in
2010 will be eligible for a $1,000 child tax credit, a $3,650 dependent exemption for that child
(which lowers their tax liability by $548), and $2,487 of EITC. In 2011, when the child is 17, the
single parent will be ineligible for the child tax credit, but remain eligible for the dependent
exemption (which equals $3,700 in 2011 and will lower their tax bill by $555) and approximately
$2,598 of EITC. The amount of these tax benefits will also change if the parent marries (which
can change their tax liability), has an additional child, or their income changes (which changes
the value of the child tax credit and EITC). Tax complexity associated with child-related tax
provisions is particularly burdensome for lower-income families. Complexity reduces utilization
rates among eligible populations and reduces the value of the benefits among those who do claim
them, because they often rely on a paid preparer for assistance. Complexity can thus undermine
the ultimate goal of policymakers, whether it be behavioral changes or increased equity.
Policy Proposals: Extending ARRA Modifications
The expiration of the ARRA modifications of the credit are scheduled to occur at the end of 2017.
As previously discussed, the EGTRRA modifications of the child tax credit were made permanent
by ATRA, while the ARRA modifications were extended temporarily for five years, through the
end of 2017. Recent congressional interest—including H.R. 769—has focused on making the
ARRA changes to the child tax credit permanent as well. Indeed, certain policymakers, in calling
for a permanent extension of the ARRA provisions included in ATRA, have stressed that the now
permanent EGTRRA provisions (not just those related to the child tax credit) benefited higher-
income taxpayers, while the temporary ARRA provisions were more-beneficial to lower-income
taxpayers.24 Their reasoning implies that one way to make the tax-code more beneficial for low-
income taxpayers—although only those with children—would be to either extend the ARRA
changes to the child tax credit past 2017 or make the ARRA changes to the child tax credit
permanent. (While making the ARRA child tax credit modification permanent would provide
stability and certainty in the tax code, a permanent extension may reduce the likelihood that
policymakers routinely evaluate these changes.)
In order to evaluate these statements, it may be helpful to first deconstruct the relative impact that
the EGTRRA and ARRA changes have had on the child tax credit, looking at the impact on
taxpayers at different income levels and then at the number of children who benefit from these
22 National Taxpayer Advocate, 2010 Annual Report to Congress, December 31, 2010.
23 For example, child tax benefits have different phase-in and phase-out levels and eligibility requirements from the
EITC and the dependent exemption. For more information on the definition of a qualifying child for different tax
benefits, see CRS Report RS22016, Tax Benefits for Families: Changes in the Definition of a Child, by Christine Scott.
24 Also see the interview with Senator Harkin on January 1, 2013, where he stated: “All of the tax benefits that go to
rich people and the high-income earners are made permanent. The tax benefits that we Democrats put in in 2009 to help
modest-income people, those are made temporary. To me, that just stands logic on its head,” see Audie Cornish,
“Harkin Explains ‘No’ Vote On ‘Fiscal Cliff’ Deal,” National Public Radio, January 1, 2013, http://www.npr.org/2013/
01/01/168417043/harkin-explains-no-vote-on-fiscal-cliff-deal.
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changes. The data indicate that while the ARRA modifications did provide relatively more benefit
to lower-income taxpayers, the EGTRRA changes benefited more children. The analysis will then
turn to the implications of extending the ARRA modifications, both on the number of children
who will be affected as well as the budgetary cost, with similar data on the impact of the
EGTRRA changes provided for comparison.
Impact of EGTRRA Versus ARRA Modifications to the Credit
EGTRRA and ARRA substantially changed the structure of the child tax credit. EGTRRA
increased the value of the credit from $500 per child to $1,000 per child and made the credit
partially refundable using the earned income formula. At the end of 2012, ATRA made these
changes permanent. ARRA expanded upon EGTRRA’s changes to refundability by lowering the
earnings threshold of the earned income formula to $3,000. The $3,000 threshold is scheduled to
expire at the end of 2017 as a result of ATRA. Hence, under current law, the refundability
threshold is scheduled to increase to $10,000 (indexed for inflation occurring since 2001)
beginning in 2018.
Distributional Impact
A distributional impact of a tax benefit indicates the share of a tax benefit received by taxpayers
at different income levels. Table 3 illustrates the different impacts of the EGTRRA and ARRA
provisions on taxpayers based on cash income. Overall, approximately 60% of the child tax
benefits from EGTRRA went to taxpayers with cash income above $50,000. By contrast, 70.5%
of child tax benefits under ARRA went to taxpayers with cash income of less than $20,000.
Table 3. Distribution of EGTRRA and ARRA Child Tax Credit Benefits, 2011
EGTRRA
ARRA
Share of
Share of
Cash Income
Tax Benefit
Total
Tax Benefit
Total
Distribution
(2009 dollars)a
(billions)
Benefit
(billions)
Benefit
of Tax Units
Less than $10K
$0.1
0.2%
$1.5
18.0%
12.5%
$10K to $20K
$1.4
4.5%
$4.4
52.4%
16.5%
$20K to $30K
$4.1
13.5%
$1.9
22.7%
13.1%
$30K to $40K
$3.9
12.7%
$0.4
4.8%
10.3%
$40K to $50K
$3.0
9.9%
$0.1
1.5%
8.0%
$50K to $75K
$6.0
19.7%
$0.0
0.5%
13.1%
$75K to $100K
$6.5
21.2%
$0.0
0.2%
9.5%
$100K to $200K
$5.5
18.1%
$0.0
0.0%
11.9%
More than $200k
$0.1
0.2%
$0.0
0.0%
4.3%
Total
$29.6 100.0% $8.3 $100.0% 100.0%
Source: CRS calculations using Tax Policy Center Tables T10-0007 and T10-0005, January 12, 2010.
Notes: Items may not sum to 100% due to rounding. Tax Units includes both filing and non-filing units but
excludes those that are dependents of other tax units. Tax Benefit values indicate the total value of credit in
terms of reduction in revenues and increase in outlays (from the refundable portion of the credit).
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a. Cash income includes wages and salaries, investment (taxable dividends, realized net capital gains) and
business income as well as government transfer payments (social security, SSI, veterans benefits), employee
contribution to tax-deferred retirement savings plans, and business income or loss.
In addition, after the EGTRRA modification went into effect, research indicates that qualifying
Hispanic and African-American households were less likely to receive the full value of the child
tax credit then qualifying white households. Specifically, in 2005, when all the child tax credit
provisions of EGTRRA were effective, 49.5% of households with qualifying African American
children and 46.0% of households with qualifying Hispanic children were ineligible to receive the
full credit due to low incomes, in contrast to 18.1% of households with white children.25
Estimates of the distributional impact on tax filers of the EGTRRA and ARRA provisions are
currently unavailable, but can reasonably be expected to approximate the distribution in Table 3.
Recent data (provided in Figure 1) do, however, provide information on the impact in 2013 of
these modifications in terms of the number of children who benefit. (Although the data are
presented in terms of the number of children who benefit, the tax credit is actually claimed by
their parents, ostensibly for children’s benefit.) These data provide another way to analyze the
impact of the EGTRRA and ARRA changes to the credit.
Number of Children Affected by EGTRRA Versus ARRA Changes
According to estimates provided by the Tax Policy Center, both the EGTRRA and ARRA changes
to the child tax credit are estimated to have a significant impact on the benefits received by
millions of children, as illustrated in Figure 1.26 In 2013, the EGTRRA provisions are estimated
to result in 18.6 million children being eligible for the credit who otherwise would not receive
this tax benefit if the EGTRRA changes had expired. In addition, 3.4 million children in 2013 are
estimated receive a larger credit as a result of the EGTRRA provisions.
25 For more information see Leonard Burman and Laura Wheaton, “Who Gets the Child Tax Credit,” Tax Notes,
October 17, 2005, pp. 387-393.
26 Data in this figure represent the number of children who would benefit from the extension of EGTRRA and ARRA
child tax credit provisions in 2013.
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Figure 1. Number of Children Affected by an Extension of
EGTRRA and ARRA Child Tax Credit Provisions, 2013
Source: Tax Policy Center, Table T11-0125, May 24, 2011.
Notes: The baseline assumed the expiration at the end of 2012 of both the EGTRRA and ARRA modifications
to the child tax credit. Hence, the term “newly eligible” refers to those who were scheduled to lose the benefit
entirely in 2013. However, both these changes were extended by the American Taxpayer Relief Act of 2012 (P.L.
112-240; ATRA). EGTRRA is the Economic Growth and Tax and Tax Relief Reconciliation Act of 2001 (P.L. 107-
16) and ARRA is the American Recovery and Reinvestment Act of 2009 (P.L. 111-5).
The extension of the ARRA modifications is estimated to have a lower overall benefit in terms of
the impact on children.27 Approximately 17.1 million children in 2013 will benefit from the
extension of ARRA child tax credit provisions as opposed to 22 million children that benefit from
the EGTRRA provisions. The majority of children who will benefit from the ARRA modification
would receive a larger credit (10.2 million children), while fewer will be newly eligible (6.9
million children).
Cost of Extending EGTRRA and ARRA Modifications to the Credit
The Joint Committee on Taxation (JCT) estimated that the permanent extension of the EGTRRA
changes to the child tax credit would reduce revenue by $354.5 billion over the 2013-2022
budgetary window. The temporary extension of the ARRA changes was estimated to reduce
revenue by $50.5 billion over the same time period.28 Historical data provide estimates of the
comparative costs associated with the EGTRRA and ARRA modifications, indicating that a
majority of the cost is due to the EGTRRA provisions. The Joint Committee on Taxation’s
27The baseline for the ARRA estimate assumes the EGTRRA changes are extended. Hence, these figures isolate the
impact of the ARRA modifications to the child tax credit from changes made by EGTRRA.
28 Joint Committee on Taxation, Estimated Revenue Effects of the Revenue Provisions Contained In An Amendment In
The Nature Of A Substitute to H.R. 8, The “American Taxpayer Relief Act of 2012,” As Passed By The Senate on
January 1, 2013, January 3, 2013, JCX-1-13.
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revenue estimates for the 2010 Tax Act isolated the costs of extending the EGTRRA and ARRA
provisions for two years (2011 and 2012) and indicated that 78% of the cost of these policies was
associated with the extension of the EGTRRA provisions. Specifically, the cost of the two-year
extension of EGTRRA child tax credit provisions was $71.7 billion over 10 years (2011-2020),
whereas the cost of extending the ARRA provisions was $19.7 billion over the same period.29
Of the total annual cost of the child tax credit in 2012, approximately 60% was a result of the
EGTRRA changes, 16% was a result of ARRA modification, and 24% was a result of the
underlying parameters of the pre-EGTRRA and ARRA credit.
Policy Options: Changing Other Parameters of the
Credit
In addition to extending the ARRA modifications to the child tax credit past 2017, policymakers
may consider modifying the current parameters of the child tax credit. The impact of
modifications will depend on a taxpayer’s income. Modifications that benefit middle- and upper-
middle-income taxpayers include increasing the amount of the credit per child and increasing the
phase-out thresholds. Modifications that benefit lower-income taxpayers include reducing the
refundability threshold or increasing the current refundability rate. These changes will likely have
significant budgetary cost that policymakers may consider alongside policy goals they may
achieve by increasing this tax benefit.
Increasing the Maximum Amount of the Credit
Increasing the maximum amount of credit per child, either by a fixed amount or proportional to
inflation, would be most valuable to families whose income does not exceed the phase-out limits.
However, for lower-income families, those with income tax liability less than the value of their
credit, increasing the maximum amount of the credit will be valuable in so far as they can claim it
as refund using the earned income formula. If their earnings are sufficiently low, they may not be
able to benefit from increasing the maximum amount of the credit. For example, if the child tax
credit was doubled to $2,000 per child, and all other aspects of the credit remained the same as
current law, a family with two children would need earnings of at least $29,667 to claim the full
credit if the maximum credit value doubled. Currently the minimum amount of earnings needed
to claim the full credit for two children is $16,333.
Policymakers could also choose to increase the value of the credit by indexing it to inflation. If
the $500 per child tax credit in 1998 had been indexed for inflation using the Consumer Price
Index (CPI), it would be $693.14 in 2011 dollars. If the $1,000 child tax credit in effect in 2003
was indexed to the CPI it would be $1,228.07 in 2011 dollars. Increasing the amount of the credit
based on inflation will not benefit certain lower-income taxpayers whose earnings tend to grow
more slowly than inflation.30
29 This includes the budgetary impact of the outlays attributed to the refundable portion of the credit.
30 Historical data suggest that the income of lower-income Americans increases much more slowly than prices do. U.S.
Census Bureau, Income Statistics for Families: Table F-3. Mean Income Received by Each Fifth and Top 5 Percent of
Families, http://www.census.gov/hhes/www/income/data/historical/families/index.html and Bureau of Labor Statistics,
(continued...)
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Reducing the Refundability Earnings Threshold and Increasing the
Refundability Rate
Among lower-income taxpayers, whose tax
liability is less than the value of their child tax
Distribution of Benefit from Reducing
credit, the most relevant parameters of the
the Refundability Threshold to Zero,
child tax credits are those that affect
201131
refundability. Lowering the refundability
Cash Income Level (2011
Share of
threshold (currently set at $3,000) and
dollars)
Benefit
increasing the refundability rate (currently
15%) would result in more families with low
Less than $10,000
46.0%
earnings being eligible to receive the credit or
$10,000-$20,000
36.8%
a larger credit. Under current law, a family
$20,000-$30,000
11.7%
with two children must earn $16,333 to be
eligible to receive $2,000 in child tax credits
$30,000-$40,000
2.9%
as a refund. If the refundability threshold was
More than $40,000
2.0%
lowered to zero (and all other parameters
Source: Tax Policy Center, Table T11-0126, May
remained the same), this same family would
26, 2011.
need earnings of $13,333 to receive the full
$2,000 in child tax credits as a refund.
Economic modeling of this scenario indicates that roughly 95% of the benefit resulting from
reducing the child tax credit refundability
Distribution of Benefit from Increasing
threshold to zero would go to taxpayers with
the Refundability Rate to 40%, 201132
cash income levels below $30,000. Nearly
Cash Income Level
Share of
half of the benefit, 46%, would go to
(2011 dollars)
Benefit
taxpayers with cash income below $10,000.
Less than $10,000
35.2%
On the other hand, if the refundability rate
$10,000-$20,000
44.3%
was increased to 100% (meaning for every
$20,000-$30,000
14.3%
dollar a family earned above the $3,000
threshold, they received $1 of refundable
$30,000-$40,000
3.1%
credit), this same family would need earnings
More than $40,000
2.6%
of $5,000 to receive the full $2,000 in child
tax credits. Alternatively, if the refundability
Source: Tax Policy Center, Table T11-0128, May
26, 2011.
rate was the same as the refundability rate of
the EITC for a family with two children
(40%), this family would need earnings of $8,000 to receive the full value of the child tax
credit.33 Increasing the refundability rate and keeping the refundability threshold the same as
(...continued)
Inflation Calculator, http://data.bls.gov/cgi-bin/cpicalc.pl.
31 This model assumes current law as the baseline (i.e., the 15% refundability rate, $1,000 credit per child, and $3,000
refundability threshold).
32 This model, created by the Tax Policy Center (TPC), assumes current law as the baseline (i.e., the 15% refundability
rate, $1,000 credit per child, and $3,000 refundability threshold).
33 For a family with two eligible children, increasing the refundability rate from the current level of 15% to 16% (while
keeping the refundability threshold fixed at $3,000) will reduce the minimum earnings needed to qualify for $2,000 in
child tax credits by $833 from $16,333 to $15,500. However, the magnitude of this effect decreases as the refundability
rate increases such that when the rate is raised from 99% to 100%, the level of minimum earnings needed to qualify for
(continued...)
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current law would result in certain low-income households that already receive the child tax
credit being eligible for a larger refundable credit. However, it would not provide any benefit to
households with earnings below the refundability threshold.
Economic modeling of a 40% refundability rate suggests that approximately 94% of the tax
benefits associated with increasing the refundability rate would benefit taxpayers with cash
income levels under $30,000. The greatest share of the tax benefit would go to taxpayers with
cash income between $10,000 and $20,000, because their income level is significantly above the
$3,000 refundability threshold such that they can benefit from the increased refundability rate.
Changing the refundable portion of the credit by changing the refundability threshold or
refundability rate primarily affects lower-income families for whom the refundable portion is
often the key component of the credit. Approximately 80% of the benefit that arises from
reducing the refundability threshold to zero or raising the refundability rate to 40% would go to
families making less than $20,000.
Increasing the Phase-out Limits of the Credit
Since the child tax credit was created in 1997, the credit has phased out for married taxpayers
filing joint returns whose income34 exceeds $110,000 ($55,000 for married couples filing
separately) and for head of household filers with income above $75,000. These phase-out
thresholds are not indexed for inflation. If they had been indexed for inflation, they would have
been 41% higher in 2012 than they were in 1998.35 Over the years, the real value of these
thresholds has decreased due to inflation, pushing more taxpayers into the phase-out range and
reducing the amount of the child tax credit these taxpayers are eligible for. One policy option
would be a one-time increase in the phase-out limits. Another policy option would be indexing
the amounts in accordance with established procedures applied to other elements of the tax
system, such as personal exemption and the standard deduction. Finally, some combination of the
two approaches is also possible.
Increasing the AGI phase-out limits for the child tax credit would significantly expand the
number of taxpayers who would be eligible to receive the child tax credit. Such a change may be
particularly important for taxpayers who live in areas with a high cost of living, where both
incomes and costs of rearing children may be correspondingly higher. It would also increase the
budgetary cost of the program. Critics of this change may question the necessity of such relief.
The empirical evidence suggests that the overall federal tax burden, as well as the federal
individual income tax burden, fell for most households with children between 1979 and 2007.36
Legislation enacted since 2007 to address economic insecurity resulting from the recent
recession, including ARRA and the 2010 Tax Act, has further reduced taxes for many Americans
(...continued)
$2,000 in credits falls from $5,020 to $5,000, a difference of $20.
34 The phase-out limits are based on modified adjusted gross income (MAGI). With respect to the child tax credit,
modified adjusted gross income (MAGI) is equal to AGI increased by foreign earned income of U.S. Citizens abroad,
including income earned in Guam, American Samoa, the Northern Mariana Islands, and Puerto Rico.
35 Based on price inflation calculations using the Bureau of Labor Statistics (BLS) inflation calculator,
http://www.bls.gov/data/inflation_calculator.htm.
36 Tax Policy Center, Historical Effective Federal Tax Rates for Households with Children, April 8, 2011,
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=459.
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through the enactment of new provisions like the Making Work Pay tax credit (which expired at
the end of 2010),37 payroll tax reduction, and the extension of EGTRRA’s individual income tax
provisions.38
Policy Options: Reducing Complexity by Creating
Uniform Child Benefits
Tax benefits compose a substantial proportion of the federal benefits that go to families with
children. According to one study, of the five largest spending and tax programs on children, three
are tax provisions—the child tax credit (number two), the EITC (number three), and the
exemption for dependents (number four). Only Medicaid spending on children is higher.39 The
refundable portions of the EITC and child tax credit are structured to direct assistance to low-
income families, and could reflect an increased interest by Congress to provide financial
assistance to the low-income workers through the tax code as opposed to transfer payments. In
fact, the refundable portion of the EITC and child tax credit ranked fourth and sixth respectively
in outlays among programs targeted towards low-income populations.40
Some experts believe that the different eligibility rules for different child-related tax benefits
make it increasingly difficult for taxpayers to claim these benefits. This complexity results in
direct financial costs for taxpayers who may choose to use paid preparers, instead of preparing
their return themselves. According to IRS data, more than half of taxpayers with income below
$50,000 use paid tax preparers.41 President Bush’s 2005 Presidential Panel on Federal Tax
Reform summarized the complexity of claiming the child tax credit, “Figuring out whether you
can claim the child tax credit ... requires the skills of a professional sleuth: You need to complete
eight lines on a tax form, perform up to five calculations, and fill out as many as three other forms
or schedules.”42
Much of the complexity in child related tax benefits is related to differing definitions of what
constitutes an eligible child, specifically the different age limits of qualifying children among the
different tax benefits.43 The child tax credit is limited to children under 17 years old, unlike other
tax benefits, such as the dependent exemption that can be claimed by taxpayers with children as
old as 23. Increasing the age of eligible children would have significant budgetary costs. One
study estimated that expanding the child tax credit to 17 and 18 years olds would reduce revenues
37 For more information on the Making Work Pay tax credit, see CRS Report R40969, Withholding of Income Taxes
and the Making Work Pay Tax Credit, by John J. Topoleski.
38 The individual income tax provisions of EGTRRA reduced marginal income tax rates, reduced taxes on capital
gains/dividend income, and provided marriage penalty tax relief.
39 Julie Isaacs, C. Eugene Steurle, and Stephanie Rennane, et al., Kids Share 2010: Report on federal expenditures on
children through 2009, Urban Institute, July 2010, Figure 3.
40 See Table 2 in CRS Report R41625, Federal Benefits and Services for People with Low Income: Programs, Policy,
and Spending, FY2008-FY2009, by Karen Spar.
41 Internal Revenue Service, SOI Tax Stats., Table 2, Individual Income and Tax Data, by State and Size of Adjusted
Gross Income, Tax Year 2007.
42 The President’s Advisory Panel on Federal Tax Reform, Simple, Fair, and Pro-Growth: Proposals to Fix America’s
Tax System, November 2005, p. 2.
43 For more information on the definition of a child for child-related tax benefits, see CRS Report RS22016, Tax
Benefits for Families: Changes in the Definition of a Child, by Christine Scott.
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by $6.1 billion in 2011.44 Beyond the differing eligibility definitions used for different child tax
benefits, the tax benefits themselves are structured differently. The interaction of these different
structures has led to a middle-income families receiving a smaller total benefit than some higher-
income taxpayers, as illustrated in the Figure 2.45
President Bush’s 2005 Panel on Federal Tax Reform46 recommended simplifying the tax code,
including child tax benefits, but to date these proposals have not been adopted. Specifically, the
panel recommended consolidating the standard deduction, personal exemption, and child tax
credit into one tax benefit, a family tax credit.47
Figure 2. Amount of Child Tax Credit by Income Level,
2011 Single Parent with Two Children Filing as Head of Household
Notes: “CTC Benefit” refers to the Child Tax Credit, while ”EITC benefit” refers to the Earned Income Tax
Credit
More than five years later, some experts have again proposed reducing the complexity of these
provisions and making their benefits more transparent by combining child tax benefits into a
uniform child credit.48 While such a proposal could significantly simplify eligibility rules as well
as the calculation of the benefit, policy makers would need to consider the competing functions of
current tax benefits as they create a uniform benefit. For example, some benefits like the EITC
and refundable portion of the child tax credit subsidize earnings, whereas the nonrefundable
portion of the child tax credit provides a uniform benefit per child for taxpayers with sufficient
earnings that do not exceed the phase-out level. Because of this distinction, policymakers might
44 For more information on proposals to create a uniform age for child-related tax benefits, see Elaine Maag, “Tax
Simplification: Clarifying Work, Child, and Education Incentives,” Tax Notes, March 28, 2011, pp. 1587-1596.
45 This figure does not represent the full array of child-related tax benefits that may be available to a family. For
example, it does not include the child and dependent care tax credit, or education-related tax benefits like the American
Opportunity Tax Credit.
46 The President’s Advisory Panel on Federal Tax Reform, Simple, Fair, and Pro-Growth: Proposals to Fix America’s
Tax System, November 2005.
47 Ibid, pp. 61.
48 For more information on proposals to create a Uniform Child Credit, see Elaine Maag, “Simplicity: Considerations in
Designing a Unified Child Credit,” National Tax Journal, vol. 63, no. 4 (Part 1) (December 2010), pp. 765-780.
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consider creating different uniform credits based on the purpose of the credit, whether the
purpose of the credit is to subsidize earnings of low-income taxpayers, or provide a benefit for
having children.
Author Contact Information
Margot L. Crandall-Hollick
Analyst in Public Finance
mcrandallhollick@crs.loc.gov, 7-7582
Acknowledgments
Elaine Maag, Senior Researcher at the Tax Policy Center, provided valuable information used in this
report.
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